Bank Of England Releases Major Paper on Blockchain and Central Banking

1266
ADVERTISEMENTSMunchee Dmarket exhastaWorldcore ICOParagon ICO

Share with:


The Bank of England has just released a significant Blockchain paper –  Macroeconomics of central bank issued digital currencies, by John Barrdear and Michael Kumhof, which discusses the consequences of a central bank making a digital form of cash available to the general public.

We study the macroeconomic consequences of issuing central bank digital currency (CBDC) — a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as medium of exchange. In a DSGE model calibrated to match the pre-crisis United States, we find that CBDC issuance of 30% of GDP, against government bonds, could permanently raise GDP by as much as 3%, due to reductions in real interest rates, distortionary taxes, and monetary transaction costs. Countercyclical CBDC price or quantity rules, as a second monetary policy instrument, could substantially improve the central bank’s ability to stabilise the business cycle.

In other words, they are talking about a complex economic model in which anyone can hold money at a central bank, fully risk-free, as an alternative to bank deposits (money created by banks).

From Positivemoney.org:

  • The paper essentially models a partial Sovereign Money System in which anyone can hold their money in the form of risk-free digital cash created by central bank. This gives the public an alternative to bank deposits. However, banks would still be able to create money.
  • In the model, digital cash is created only when the central bank purchases bonds from households or investors. The paper does not consider what would happen if the central bank created digital cash to finance government services or tax cuts, although it notes these questions for future research.
  • The model suggests that the introduction of digital cash would have some key benefits:
    • It could boost GDP by around 3%, due to “reductions in real interest rates, in distortionary tax rates, and in monetary transaction costs…’.
    • It can give the central bank a second monetary policy tool to stabilise the economy.
    • It could improve financial stability.
  • The paper flags up the fact that the transition could be risky and needs to be well managed.
  • In the section on Pros and Cons of CBDC, the paper confirms many of the advantages that we also covered in our paper Digital Cash: Why central banks should issue an electronic money.

About Richard Kastelein

Founder of industry publication Blockchain News, partner at ICO services collective CryptoAsset Design Group (helped raise over $200m+), director of education company Blockchain Partners (Oracle Partner) and ICO event organiser at leading industry event  CryptoFinancing (first ICO event in Europe) - Richard Kastelein is an award-winning publisher, innovation executive and entrepreneur. He sits on the advisory boards of half a dozen Blockchain startups and has written over 1200 articles on Blockchain technology and startups at Blockchain News and has also published pioneering articles on ICOs in Harvard Business Review and Venturebeat.
 
Kastelein has spoken (keynotes & panels) on Blockchain technology in Amsterdam, Antwerp, Barcelona, Beijing, Brussels, Bucharest, Dubai, Eindhoven, Gdansk, Groningen, the Hague, Helsinki, London, Manchester, Minsk, Nairobi, Nanchang, San Mateo, Shanghai,Tel Aviv and Venice. His network is global and extensive.
 
He is a Canadian (Dutch/Irish/English/Métis) whose writing career has ranged from the Canadian Native Press (Arctic) to the Caribbean & Europe. He's written occasionally for Harvard Business Review, Wired, Venturebeat, The Guardian and Virgin.com and his work and ideas have been translated into Dutch, Greek, Polish, German and French.
 
A journalist by trade, an entrepreneur and adventurer at heart, Kastelein's professional career has ranged from political publishing to TV technology, boatbuilding to judging startups, skippering yachts to marketing and more as he's travelled for nearly 30 years as a Canadian expatriate living around the world.
 
In his 20s, he sailed around the world on small yachts and wrote a series of travel articles called, "The Hitchhiker's Guide to the Seas' travelling by hitching rides on yachts (1989) in major travel and yachting publications. He currently lives in Groningen, Netherlands where he's raising three teenage daughters with his wife and sailing partner, Wieke Beenen.

Visit Website
View All Articles
advertisementBlockchain Expo